Standard Costing

STANDARD COSTING WITH SOLUTIONS Question 1: Calculate Material Price Variance and Material Usage Variance: Standard (1 FG) Actual (1 FG) Kg Rate Kg Rate Amount � 18,000 10 1,80,000 20,000 12 5,000 20

Amount � 2,40,000 1,00,000

After analysing, it was found that out of 25,000 unit, un it, 5,000 units were purchased as an emergency order at higher rate @ � 20.

Solution: Material Price Variance = (S.P. – A.P.) × A.S. = (10 – 12) × 20,000 + (10 – 12) × 5,000 = � 50,000 (A) Material Usage Variance = Excess price variance due to emergency order + (S.Q. – A.Q.) × S.P. = (12 – 20) × 5,000 + (18,000 – 25,000) × 10 = � 1,10,000 (A) --------------------------------------------------------------------------------------------------------------------------------------Question 2: A manufacturing concern which has adopted standard costing furnishes following information: Standard Material for 70 kg of Finished Products 100 kg Price of Materials � 1 per Kg Actual: Output Materials used Cost of materials

2,10,000 Kg 2,80,000 Kg � 2,52,000

Calculate (a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance.

Solution: Data for Material Variance (2,10,000 kg)  Standard (Output 2,10,000 kg) Qty. Rate Amount � 3,00,000 3,00,000 k 1 3,00,000 3,00,000

Actual (Output 2,10,000 kg) Qty. Rate Amount � 2,80,000 2,80,000 0.90 2,52,000 2,52,000

Statement of Variance Sl. No. Particulars 1. Material Usage Variance

2.

Material Price Variance

3.

Material Cost Variance

Basis (Std.Qty. – A.Qty.) × S.P. (3,00,000 – 2,80,000) × 1 (S.P. – A.P.) × A.S. (1 – 0.90) × 2,80,000 (Material Usage + Material Price Variance) i.e. SC–AC

Amount ( `) 20,000 Favourable

28,000 Favourable 48,000 Favourable

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Question 3: From the data given below, calculate the material price variance, the materials usage variance and material cost variance.

Consumption per 100 Units of Product Raw material A B

Standard

40 units @ � 50 per unit

50 units @ � 50 per unit

�

Solution: Item

Actual �

Data for Material Variances Standard Qty. Rate

Actual Amount

Item

Qty.

Rate

(�)

A B

40 60

50 40

Amount (�)

2,000 2,400 4,400

A B

50 60 110

50 45

2,500 2,700 5,200

Statement of Variances Sl. No. 1.

2.

Particulars Material Price Variance

Material Usage Variance

Basis (S.P. – A.P.) × A.Q.      → (50 – 50) × 50 = 0 A B      → (40 – 45) × 60 = 300 Adverse (S.Q – A.Q.) × S.R      → (40 – 50) × 50 = 500 A B      → (60 – 60) × 40 = 0

Amount (�)

300 (Adverse) 500 (Adverse)

Material Cost Variance = Material Price Variance + Material Usage Variance = 300 (A) + 500 (A) = � 800 (A) OR

Material Cost Variance = Standard Cost – Actual Cost = 4,400 – 5,200 = � 800 (Adverse) ---------------------------------------------------------------------------------------------------------------------------------------

Question 4: From the following information, compute (a) Cost Variance (b) Price and (c) Usage Variance.

Material A Material B Material C Total

Quantity 10 20 20 50

Standard Unit Price 2 3 6 4

Total � 20 60 120 200

Quantity 5 10 15 30

Actual Unit Price 3 6 5 5

Total � 15 60 75 150

Solution:

Data for Material Variance  Budgeted/Standard (1 FG) Amount

Actual (1 FG) Qty. Rate

Item

Amount

(�)

A B C

10 20 20

2 3 6

(�)

20 60 120

A B C

5 10 15

200

3 6 5

15 60 75

30

150

Statement of Variance Sl. No. 1.

2.

Particulars Material Price Variance

Material Usage Variance

3.

Material Cost Variance

Basis (S.R. – A.R.) × AQ A      → (2 – 3) × 5 = 5 (A)      → (3 – 6) × 10 = 30 (A) B      → (6 – 5) × 15 = 15 (F) C (S.Q. – A.S.) × S.R.      → (10 – 5) × 2 = 10 (F) A      → (20 – 10) × 3 = 30 (F) B      → (20 – 15) × 6 = 30 (F) C M.P.V. + M.U.V. 20 (A) + 70 (F)

Amount �

20 (A)

70 (F)

50 (F)

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Question 6: Vinak Ltd. produces an article by blending two basic raw materials. It operates a standard costing system and the following standards have been set for raw materials: Material Standard Mix

A B

Standard Price per kg

40% 60%

�4.00 � 3.00

The standard loss in processing is 15%. During April, 1980, the company produced 1,700 kg of finished output. The position stock and purchases for the month of April, 1980 is as under: Material Stock on 1.4.80 of kg Stock on 30.4.80 kg Purchased during April 1980

A B

35 40

5 50

kg

Cost (�)

800 1,200

3,400 3,000

Calculate the following Variances: (i) Material Price Variance (ii) Material Usage Variance (iii) Material Yield Variance (iv) Material Mix Variance (v) Total Material Cost Variance.

Solution: Data for Material Variances Material

Budgeted

Standard

Standard for Actual

Actual

Qty.

Rate

Amount

Qty.

Rate

(�)

A B

40 60 100

4 3

160 180 340

Amount

Qty.

Rate

Amount

(�)

800 1200 2,000

4 3

3,200 3,600 6,800

(�)

808 1,212

830 1,190 2,020

4.2394 2.5168

3,518.75 2,995.00 6,513.75

Statement of Variance Sl.

Particulars

Basis

(S.P. – A.P.) × A.Q. A: (4 – 4.2394) × 830 = 199 (A) B: (3 – 2.5168) × 1190 = 575 (F) 2. Material Usage Variance (S.Q. – A.Q.) × S.R. A: (800 – 830) × 4 = 120 (A) B: (1,200 – 4,190) × 3 = 30 (F) 3. Material Yield Variance (Standard Ratio for total standard quantity – Standard ratio for total actual quantity) × S.R. A: (800 – 808) × 4 = 32 (A) B: (1,200 – 1,212) × 3 = 36 (F) 4. Material Mix Variance (Standard Ratio for actual mix – Actual ratio for actual mix) × S.R. A: (808 – 830) × 4 = 88 (A) B: (1,212 – 1,190) × 3 = 66 (F) 5. Material Cost Variance Material price variance + Material Usage Variance 376 (F) + 90 (A)

Amount (�)

1. Material Price Variance

376 (F)

90 (A)

68 (A)

22 (A) 286 (F)

Actual price per kg. Material A:-

� 35 × 4 + 795 × 4.25

35 + 795 = �3518.85 = � ����� 830 Material B:-

� 40 × 3 + 1150 × 2.5

40 + 1150 = � ���� � � ������ 1190 -------------------------------------------------------------------------------------------------------------------------------------------------------

Question 7: Modern Tiles Ltd manufactures plastic tiles of standard size of 6˝ × 6˝ × 1/8˝. From the following information, you are required to calculate following variances for direct materials:

I. The cost variance in total: 1. The cost variance sub-divided into (a) price (b) usage, and 2. The usage variance analysed to show (a) mixture (b) yield. A standard mix of the compound 20,000 square feet required to produce an output of tiles of 1/8˝ thickness is as follows Direct Materials Qty. (kg) Price � er k

A B C

600 400 500

1 2 3

During December 1991, eight mixes were processed and actual materials consumed were as follows: Direct Materials Qty. (kg) Price � er k A 5,000 2 B 2,900 4 C 4,400 5 Actual production for December was 6,20,000 tiles.

Solution:

Data for Material Variance

Materials

Budgeted (80,000)

Materials

Qty. Rate

A B C

600 400 500 1500

1 2 3

Standard (6,20,000)

(�)

Qty.

600 800 1,500 2900

4,650 3,100 3,875

Rate

1 2 3

S.Q. for Act. Mix

(�)

4,650 6,200 11,625 22,475

Actual (6,20,000)

Qty.

Qty.

4,920 3,280 4,100

5,000 2,900 4,400 12,300

Rate

2 4 5

(�)

10,000 11,600 22,000 43,600

Statement of Variance S.. No.

1.

2.

3.

4.

5.

Particulars

Material Price Variance (M.P.V.)

Material Usage Variance (M.U.V.)

Material Mix Variance

Material Yield Variance

Material Cost Variance

Basis

Amount (�)

(S.R. – A.R.) × A.Q. A      → (1 – 2) × 5000 = 5000(A) B      → (2 – 4) × 2900 = 5800(A) C      → (3 – 5) × 4400 = 8800(A) (S.Q. – A.Q.) × S.P. A      → (4650 – 5000) × 1 = 350(A) B      → (3100 – 2900) × 2 = 400(F) C      → (3875 – 4400) × 3 = 1575(A) (S.Q. for actual mix – Actual Quantity) × S.P. A      → (4920 – 5000) × 1 = 80(A) B      → (3280 – 2900) × 2 = 760(F) C      → (4100 – 4400) × 3 = 900(A) (Standard quantity – Standard ratio for actual quantity) × S.P. A      → (4650 – 4920) × 1 = 270(A) B      → (3100 – 3280) × 2 = 360(A) C      → (3875 – 4100) × 3 = 675(A) M.P.V. – M.U.V. 19,600(A) + 1525(A)

19,600 (A)

1,525 (A)

220 (A)

1,305 (A)

21,125 (A)

Working Notes: Calculation of Budgeted No. of Tiles NO. of Tiles= A/a = 20,000 Sq. Ft/6 X 6 sq. inch = 20,000 X12 X 12 sq. inch/36 X sq inch = 80,000 units. ---------------------------------------------------------------------------------------------------------------------------------------

Question 8: From the data given below, calculate Particulars

X

Y

Qty. (kg) 2,000 kg 2,150 kg

Raw material purchases Issue to works Works stock of material: Opening Closing

Value � 4,000

 —

300 kg 200 kg

Qty. (kg) 5,000 3,950

Value � 6,250

 —

1,000 1,250

 —  —

 —  —

Standard Price: Material X – � 1.90 per kg, Material Y – � 1.30 per kg. Standard Usage: Material X Material Y Product A 1 kg 1 kg Product B 0.5 kg 1 kg Output during the period: Product A – 1,130 units, Product B – 2,550 units. The following data is given 1. Calculate the individual material price variances for the two materials X and Y assuming that price variances are calculated at the time of purchase. 2. Calculate the individual material usage variances for material X and Y assuming that there was no work in progress either at the commencement or at the end of the period.

Solution:

Data for material variance 

Budgeted/Standard Raw Material Qty. (W.N. 1) Rate Amount (�)

X Y

2,405 3,680

1.90 1.30

4,569.50 4,784.00

Qty. (W.N. 2)

Standard Rate Amount (�)

2,250 3,700

2.00 1.25

4,500 4,625

Statement of Variances Sl. No. 1.

2.

Particulars Material Price Variance

Material Usage Variance

Basis (S.R – A.R.) × A.Q. purchaser Material X      → (1.90 – 2) × 2,000      → (1.30 – 1.25) × 5,000 Material Y (S.Q – A.Q.) × S.R. Material X      → (2,405 – 2,250) × 1.90      → (3,680 – 3,700) × 1.30 Material Y

Amount �

200 (A) 250 (F) 294.50 (F) 26 (A)

Working Notes: 1. Calculation of Standard Quantity of Raw Material Required Material X: No. of products × Material required/unit of product = (1,130 × 1) + (2,550 × 0.5) = 1,130 + 1,275 = 2,405 kg Material Y: (1,130 × 1) + (2,250 × 1) = 3,380 kg

2. Calculation of Actual Quantity Consumed Material Opening Stock at works Issue to works by purchase department

X (kg) 300 2,150

Y (kg) 1,000 3,950

2,450 200

(–) Closing stock at works

4,950 1,250

Actual consumption 2,250 3,700 ------------------------------------------------------------------------------------------------------------------------------------------Question 9: (Break up of Material Cost Variances when standard mix and actual usage are given) ‘X’ Ltd is producing floor covers in roll of standard size measuring 3 m wide and 30 m long by feeding raw materials to a continuous process machine. Standard mixture fixed for a batch of 900 sq. m of floor cover is as follows: 2,000 kg of material A at � 1.00/kg 800 kg of material B at � 1.50/kg 20 gallons of material C at �` 30/gallon. During the period, 1505 standard size rolls were produced from the material issued for 150 batches. The actual usage and the cost of materials were:

3,00,500 kg of material A at � 1.10/kg 1,19,600 kg of material B at � 1.65/kg 3,100 gallons of material C at �29.50/gallon. Present the figures to management showing the break-up of material cost variances arising during the period. Solution: Data for Variance  Budgeted Actual Qty Rate Qty Rate Amount (�) Amount (�) A B C

2,000 800 20

1 1.5 30

1 lot

A B C

Qty 3,01,000 1,20,400 3,010

150 lot Material Price Variance: A = (1 –1.1) 3,00,500 (1.5 – 1.65) 1,19,600 C = (30 – 29.5) 3,100

= 30,050 (A) = 17,940 (A) = 1,550(F) = 46,440 (A) Material Usage Variance = (SQ – AQ) SR

2,000 1,200 600

3,00,500 1,19,600 3,100

3,800

150.5 lot Standard Rate 1 1.5 30

1.1 1.65 29.5

3,30,550 1,97,340 91,450 6,19,340

Amount � 3,01,000 1,80,600 90,300

5,71,900

A: (3,01,000 – 3,00,500) × 1 = 500(F) B: (1,20,400 – 1,19,600) × 1.5 = 1200(F) C: (3,010 -3,100) X 30 =2,700 (1,000) (A) Material Cost Variance: = SC – AC Or MPV + MUV = (46,440) + (1,000) = (47,440) (A). ---------------------------------------------------------------------------------------------------------------------------------------

Question 10: 1 kg of product ‘K’ requires two chemicals ‘A’ and ‘B’. The following were the details of product ‘K’ for the month of June 1987:

1. Standard mix Chemical ‘A’ 50% and Chemical ‘B’ 50%. 2. Standard price per kilogram of Chemical ‘A’ � 12 and Chemical ‘B’ � 15. 3. Actual input of Chemical ‘B’ 70 kilograms. 4. Actual price per kilogram of Chemical ‘A’ � 15. 5. Standard normal loss 10% of total input. 6. Materials cost variance total � 650 adverse. 7. Materials yield variance total �` 135 adverse. Required: Calculate: Material mix variance total Material usage variance total Material price variance total Actual loss of actual input Actual input of Chemical ‘A’ Actual price per kilogram of Chemical ‘B’ Solution:

Data for Material Variance Standard Material

A B

Actual

Qty. (kg)

Rate (`/kg)

Amount

50 50

12 15

100 for 90G

Qty. (kg)

( �)

Standard Ratio for Actual Mix

600 750

55 55

40 70

1,350

110

110 (W.N. 2)

Rate (`/kg)

15 20

Amount (�)

600 1,400 (B.f.) 2,000

Statement of Requirement 1. Material Mix Variance= (Standard Ratio for Actual Mix – Actual Ratio for Actual Mix) × Standard Rate = (55 – 40) × 12 + (55 – 70) × 15 = (15 × 12) + (–15 × 15) = – 15 × 3 = – 45 = 45 (A) 2. Material Usage Variance = (S.Q. – A.Q.) × S.R.

= (50 – 40) × 12 + (50 – 70) × 15 = 180 (A) 3. Material Price Variance= (S.R. – A.R.) × A.Q. =(12 – 15 ) X 40 + (15 – 20) X 70 = 470 (A)

4. Actual Loss

= (110 – 90) = � 20/kg

5. Actual Input of Chemical A

= 110 – 70 = � 40/kg

6. Actual Price per Kg of Chemical B = � 1,400/70 = � ��� kg Working Notes: . M.C.V = S.C. – A.C. - 650 = 1,350 – A.C. Actual Cost = 1,350 + 650 = 2,000

2. Material Yield Variance = (Total Standard Quantity – Total Actual Quantity) × Standard Weighted Avg. Rate -135 = (100 – T.A.Q) X 1,350/100 - 13,500 1,350 = 100 – T.A.Q. - 10 = 100 – T.A.Q. Total Actual Quality = 100 + 10 = 110 kg

------------------------------------------------------------------------------------------------------------------Question 12: The following information is provided. Standard Wages: Grade X: 90 Labourers at � 2 per hour 60 Labourers at � 3 per hour

Grade Y:

Actual Wages:

Grade X: 80 Labourers at � 2.50 per hour 70 Labourers at � 2.00 per hour

Grade Y:

Budgeted Hours 1,000; Actual Hours 900; Budgeted Gross Production 5,000 units; Standard loss 20%; Actual Loss 900 units. Required: Calculate the labour variances from the above information.

Solution:

Data for Labour Variances Budgeted (4000)

Material

X Y

Lab. Hrs

90 × 1,000 = 90,000 60 × 1,000 = 60,000

Rate

Standard (4100) Amount

�/hr

(�

Lab. Hrs (W.N. 2)

Rate

2

1,80,000

92,250

2

1,84,500

3

1,80,000

61,500

3

1,84,500

Lab. Hrs

Rate

(�)

3,60,00 1,53,750

1,50,000

Amount

Actual (4100 units)

3,69,000

Amount (�)

80 × 900 = 72,000 70 × 900 = 63,000

1,35,000

2.50 2.00

1,80,000 1,26,000

3,06,000

Statement of Variance Sl. No.

Particulars

Basis

Amount (�)

1. Labour rate variances

(S.R. – A.R.) × Actual payment hours      → (2 – 2.50) × 72,000 = 36,000 (A) Grade X      → (3 – 2) × 63,000 = 63,000 (F) Grade Y 2. Labour efficiency variance (Standard hour – Actual work hrs.) × Standard rate      → (92,250 – 72,000) × 2 = 40,500 (F) Grade X      → (61,500 – 63,000) × 3 = 4500 (F) Grade Y

27,000 (F)

36,000 (Fav.)

Working Notes: 1. Calculation of Net Production Budgeted (Units) 5,000 1,000 (20% of 5,000) 4,000

Gross Production (–) Loss (Normal) Net Production

Actual (Units) 5,000 9,00 4,100

We should assume that Budgeted gross & actual gross production will be same.

2. Calculation of Revised Budgeted Hrs.

X:

4,000 F.G. = 90,000 Labour Hrs. 1 F.G 90,000 LAbour Hrs. 4,000 4100 F.G. = 90,000 4,000 X 4,100 Labour Hr. = 92,250 Labour Hrs. Y: 4,000 F.G. = 60,000 Labour Hrs. 1 F.G 60,000 LAbour Hrs. 4,000 4100 F.G = 60,000 X 4,100 Labour HRs. 4,000 = 61,500 Labour Hrs -------------------------------------------------------------------------------------------------------------------------------------------------------

Question 13: A gang of workers usually consists of 10 men, 5 women and 5 boys in a factory. They are paid at standard hourly rates of � 1, � 2 and � 3, respectively. In a normal working week of 40 hours the gang is expected to produce 1,000 units of output. In a certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were paid at the rates of � 3, � 4 and �

5, respectively. Two hours were lost due to abnormal idle time and 960 units of output were produced.

Calculate various labour variances.

Solution:

Data for Labour Variance  Budgeted (1000)

Lab Hr.

Rate

Amount

400 200

1 2

400 400 600

Lab Hr.

Rate

Amount

384 192

1 2

384 384 576

�

Men Women

Actual (960)

Revised Budgeted (960)

Lab Hr.

Rate

Amount

520 160

3 4

1,560 640 600

�

Actual Working Hours

�

494 152

Boys

200

3

1,400

192

3

1,344

120

5

2,800

114

Statement of Labour Variance Sl. No.

1. 2.

3.

4.

Particulars

Basis

Labour Cost Variance

Amount (�)

(S.C. – A.C.) 1344 – 2800 (S.R. – A.R.) × Actual Payment Hrs Men: (1 – 3) × 520 = 1040 (A) Women: (2 – 4) × 160 = 320 (A) Boys: (5 – 43) × 120 = 240 (A)

Labour Rate Variance

Labour Efficiency Variance

1,456 (A)

1,600 (A)

(Standard Hrs. – Actual Working Hours) × S.R. Men: (384 – 494) × 1 = 110 (A) Women: (192 – 152) × 2 = 80 (F) Boys: (192 – 114) × 3 = 234 (F)

Labour Idle Time Variance

(Idle Time × S.R.) Men: 13 × 2 × 1 Women: 4 × 2 × 2 Boys: 3 × 2 × 3

204 (F)

= 26 (A) = 16 (A) = 18 (A)

60 (A)

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Question 16: The details regarding the composition and the weekly wage rates of labour force engaged on a  job scheduled to be completed in 30 weeks are as follows: Standard No. of Labourers Weekly wage rate Category or Workers per Labourer (�)

Skilled 75 60 Semi-skilled 45 40 Unskilled 60 30 The work is actually completed in 32 weeks. Required: Calculate the various labour variances.

Solution:

Skilled Semi-skilled Unskilled

70 30 80

70 50 20

Data for Labour Variance 

Category Category

Actual No. of Weekly wage rate Labourers per Labourer (�)

Budget/Revised

Actual

Time (weeks)

Rate

Amount

(�/week)

(�)

2,250 1,350 1,800

60 40 30

1,35,000 54,000 54,000

5400

2,43,000

Standard Ratio for Actual Mix (weeks)

Qty.

2,250  _____ 2,400 (5400 × 5,760 1,350  _____ 1,440 ( 5400 × 5,760 1,800  _____ 1,920 (5400 × 5,760 5760 5760

2,240 960 2,560 5,760

Rate

Amount (�)

5,760

70 50 20

1,56,800 48,000 51,200

2,56,000

Statement of Labour Variances Sl. No. 1.

2.

3.

4.

5.

Particulars

Basis

Labour cost variance

Standard Cost – Actual Cost 2,43,000 – 2,56,000 = 13,000 (Adv.)

Labour rate variance

(S.R. – A.R.) × Actual Payment Hrs Skilled: (60 – 70) × 2240 Semi-skilled: (40 – 50) × 960 Unskilled: (30 –

Amount ( ) �

13,000 (A)

= 22400 (A) = 9600 (A) = 25600 (F)

Labour efficiency variance

(S.Q. – A.Q.) × S.R Skilled: (2,250 – 2,240) × 60 Semi-skilled: (1,350 – 960) × 40 Unskilled: (1,800 – 2,560) ×

Labour mix variance

(S. Ratio for Actual Mix – Actual Ratio for Actual Mix) × S.R. Skilled: (2,400 – 2,240) × 60 = 9,600 (F) Semi-Skilled: (1,440 – 960) × 40 = 19,200 (F) Unskilled: (1,920 – 2,560) × 30 = 19,200 (A)

Labour yield variance

6,400 (A)

= 600 (F) = 15,600 (F) = 22,500 (A)

6,600 (A)

9,600 (F)

(Standard Ratio for Standard Quantity – Standard Ratio for Actual Quantity) × S.R. Skilled: (2,250 – 2,400) × 60 = 9000(A) Semi-Skilled: (1350 – 1440) × 40 = 3600(A) Unskilled: (1800 – 1920) × 30 = 3600(A)

16,200 (A)

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Question 18: The following data is given: Particulars

Budget 400 8,000 10,000

Production (in units) Man hours to produce above Variable Overheads (in �)

Actual 360 7,000 9,150

The standard time to produce one unit of the product is 20 hours.

Required: Calculate variable overheads variances and give necessary journal entries to record transactions.

Solution: Budget (400 FG)

Standard (360 FG)

Hrs

Rate

Amount

8,000

1.25

10,000

Hrs

Rate

Amount

7,200

1.25

9,000

�

Labour

Actual (360 FG) Hrs

Rate

Amount

7,000

1.3071

9,150

�

�

Variable Overhead Cost Variance: = SC – AC = 9,000 – 9,150 = 150 (A) Variable Overhead Efficiency Variance: = (SH – AH) SR = (7,200 – 7,000) 1.25 = 250 (F) Variable Overhead Exp. Variance: = (SR – AR) Actual Working Hours = (1.25 – 1.3071) 7,000 = 400 (A) --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Question 21: In Department A of a plant, the following data are submitted for the week ended 31st March 1993: Standard output for 40 hours per week Budgeted fixed overheads Actual output Actual hours worked Actual fixed overheads

1,400 units � 1,400 1,200 units 32 hours � 1,500

Required: Prepare a statement of variances.

Solution: Statement of Variances Fixed Overhead Volume Variance = (Recovered Overhead – Budgeted Overhead) = 1,200 – 1,400 = 200 (A) Fixed Overhead Expenditure Variance = (Budgeted Overhead – Actual Overhead) = 1,100 – 1,000 = 100 (A) Fixed Overhead Efficiency Variance = (Standard Hours – Actual Hours) RR = (34.2857 – 32) 35 = 80 (F) Fixed Overhead Capacity Variance = (Actual Working Hours – Budgeted Hours) Recovery Rate = (32 – 40)35 = (280) (A) ---------------------------------------------------------------------------------------------------------------------------------------

Question 25: Budgeted no. of working days Budgeted no. of hours per month Fixed overhead rate Actual no. of working days in June

24 12,000 � 0.50 per hour 25

Compute the calendar variance

Solution:

Calendar Variance = (Actual days – Budgeted days) × Recovery Rate Per day = (25 – 24) × 250 (W.N. 1) = 1 × 250 = � 250 (F) Working Notes: 1. Calculation of Recovery Rate 2. Budgeted hours per month = 12,000 hrs. 3. fixed – overhead rate = 0.50/hr. 4. Budget fixed – overhead (In a month) = � 6,000 5. Recovery Rate per day = Total fixed Budget Oh 6,000 No. of Working days in a month 24 = �250/day ----------------------------------------------------------------------------------------------------------------------------------

Question 26: You are given the following data:

STATEMENT OF FIXED OVERHEAD VARIANCES SL. NO. 1

Particulars Fixed overhead volume variances Fixed Overhead expenditure variances Fixed overhead cost variances

Basis Amount Recovered-Budgeted 1,000(A) 9000- 10,000 2 Budgeted- Actual 500(A) 10,000 – 10,500 3 Recovered-Actual 1,500(A) 9000 – 10,500 ----------------------------------------------------------------------------------------------------------------------------

Question 27:

Fixed overhead as per budget, i.e. estimated � 5,000

Budgeted hours, i.e. estimated Actual hours worked Actual fixed overhead Required: Compute the expenditure and volume variances.

Solution:

Statement of Fixed Overhead Variances  Sl. No. Particulars 1. Fixed overhead Expenditure variance

Basis Budgeted – Actual � 5,000 – � 5,600

2. 3.

Fixed overhead volume variance Fixed overhead total variance

Recovered – Budgeted � 3,500 – � 5,000

Recovered – Actual �

Amount

600 (A) 1500 (A) 2100 (A)

�

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Question 28: Budgeted Output A B C D E F G

Budgeted Hour 10 2 8 50 10 8 12 100

Actual Hour 8

20 40 15 15

Budgeted overhead = �10,000 Actual overhead = � 12,500. Required: Calculate the fixed overhead volume and Exp variance. Solution:

Actual Output A  — C D  — F G

Statement of fixed overhead variances Sl. No. 1.

2.

Particulars Fixed overhead expenditure variances

Fixed overhead volume variances

Basis Budgeted – Actual 10,000 – 12,500 Recovered – Budgeted 8,800 – 10,000

Amount

2,500 (A) 1,200 (A)

Note: If a company produces different products and every product does not consume equal budgeted hours, it is better to apportion high part of fixed OH to the product which has high budgeted hours. (The product here means actual output). In other words, we can say recovery should be on the basis of budgeted hours for actual outputs. If a company produces different products and every product consumes equal budgeted hours, overhead may be recovered either on the basis of actual output or budgeted hours for actual output. -------------------------------------------------------------------------------------------------------------------------------------------------------

Question30: A company has a normal capacity of 120 machines, working 8 hours per day of 25 days in a month. The fixed overheads are budgeted at � 1,44,000 per month. The standard time required to manufacture one unit of product is 4 hours. In April 1998, the company worked 26 days of 840 machine hours per day and produced 5,305 units of output. The actual fixed overheads were �1,42,000.

Required: Compute 1:- E  fficiency variance 2:-Revised capacity variances 3:- Calendar variance 4:- Expense variance 5:- Volume variance

6:- Total fixed overheads variance

Statement of Variances Sl. 1.

Particulars Efficiency variance

Basis (S. Hr – A.W.Hr) × R.R = (21.220 – 21,840) × 6

Amount �

3,720 (A)

2.

Revised Capacity variance

Total Cap. variance – Calendar Variance 12,960 – 5,760 (W.N. – 1)

18,720 (A)

3.

Calendar variance

(Actual days – Budgeted days) Standard Rate/day = (26 – 25) × 5,760 = 5,760

5,760 (F)

4.

Expenses variance

Budgeted – Actual 1,44,000 – 1,42,000

2,000 (F)

5.

Volume variance

Recovered – Budgeted 1,27,320 – 1,44,000

16,680 (A)

6.

Total fixed overhead variance

Recovered – Actual 1,27,320 – 1,42,000

14,680 (A)

Working Note1 Calculation of total Capacity Variance Total Capacity Variance = (Actual Working Hours – Budgeted Hour) X Recovery Rate = (21,840 – 24,000) X 6 = 12,960 Adverse --------------------------------------------------------------------------------------------------------------------------------------Question 31: The following figures are extracted from the books of a company: Particulars Budget Actual Output ( in units) 6,000 6,500 Hours 3,000 3,300 Overhead Cost-fixed 1,200 1,250 Variable 6,000 6,650 Number of days 25 27 Required: Compute and analyse the overhead variances.

Note: Assume “8” Working Hour Per day, Budgeted Hours = 20 × 8, Actual Hour = 21 × 8.

Sl. No.

Particulars

Basis

Amount (`)

1.

Fixed OH Volume Variances

Recoverd – Budgeted 1,300 – 1,200

100 (F)

2.

Fixed OH Expenditure Variances

Budgeted – Actual 1,200 – 1,250

50 (A)

3.

Fixed OH Cost Variance Recovered – Actual 1,300 – 1,250

50 (F)

4.

Fixed OH Efficiency Variance

(S. Hrs – A.W.Hrs) × Recovery Rate = (3,250 – 3,300) × 0.40

20 (A)

5

Fixed OH Capacity Variance

(A.W.Hrs – Bud. Hrs) × Recovery Rate = (3,300 – 3,000) × 0.40

120 (F)

6.

Fixed OH Calendar Variance

(Actual Work Days – Budgeted days) × R.R./day 1,200  _____ = (27 – 25) × 25

96 (F)

7.

Fixed OH Balanced Capacity Variance

Total Capacity Variance – Calendar Variance = 120 Fav. – 96 Fav.

24 (F)

8.

Variable OH Variable

Standard variable OH for Actual Output – Actual variable OH Actual Output 6,000  _____ = × 6,500 – 6,650 6,000 = 6,500 – 6,650

150 (A)

-------------------------------------------------------------------------------------------------------------------------------------------Question 32: The following information was obtained from the records of a manufacturing unit using Standard Costing System: Production Standard 4,000 units Actual 3,800 units

(�)

Working days Fixed overhead Variable overhead

(�)

20 40,000 12,000

21 39,000 12,000

Required: Calculate the following overhead variances: Variance overhead variance (b) Fixed overhead variance. Expenditure Variance (b) Volume Variance (c) E  fficiency Variance (iv) Calendar variance.

Statement of Variances Sl. No.

Particulars

Basis

Amount (�)

1. Variable OH Variances

Standard Variable OH for actual output – Actual variable OH for actual output 12,000  ______ 4000 × 3,800 – 12,000 = 11,400 – 12,000

600 (A)

2. Fixed OH Variance

Recovered – Actual 38,000 – 39,000 = 1,000

1,000 (A)

3. Fixed OH Expenditure Variance

Budget – Actual 40,000 – 39,000

1,000 (F)

4. Fixed OH Volume Variance

Recovered – Budged 38,000 – 40,000

2,000 (A)

5. Fixed OH Efficiency Variance

(Standard Working Hr – Actual Working Hour) × R.R./hr. (152 – 168) × ` 250/hr.

4,000 (A)

6. Fixed OH Calendar Variance

(Actual Working days – Budgeted Working days) × R.R. per day 40,000  ______ (21 – 20) × 2

2,000 (F)

Question 33: A Cost Accountant of a company was given the following information regarding the overheads for February 1987: Overheads cost variance � 1,400 adverse. Overheads volume variance 1,000 adverse. Budgeted hours for February 1987 1,200 hours. Budgeted overheads for February 1987 � 6,000.

Actual rate of recovery of overheads � 8 per hour. Required: To Assist the cost accountant in computing the following for February 1986— 1:- Overheads expenditure variance 2:- Actual overheads incurred 3:- Actual hours for actual production 4:- Overheads capacity variance 5:- Overheads e  fficiency variance 6:- Standard hours for actual production.

Solution: Sl. No.

Statement of Required Information  Particulars

Basis

Amount (�)

1.

Overhead Expenditure Variance

W.N. 1

400 A.

2.

Actual Overhead incurred

W.N. 2

6,400

3.

Actual Hours for Actual production

800 hrs.

4.

Overheads Capacity Variance

Actual Overhead  _______________ Actual Rate (Actual hrs worked) × Recvoery Rate 6,000  _____ (800 – 1,200) × 1,200

2,000 (A)

(Standard Hr. – Act. worked Hr.) × R.R. (1,000 – 800) × 5

1,000 (F)

W.N. – 3

1,000 hrs.

5.

Overheads Efficiency Variance

6.

Standard hours for actual production

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Question 34: The Dearborn Company manufactures product X in standard batches of 100 units. A standard cost system is in use. The standard costs for a batch are as follows:

Raw materials Direct labour Variable overhead

60 kg @ � 4.50/kg

� 270

36 hr @ �8.25/hour

� 297

36 hr @ �4.75/hour

�` 171 � 738 24,000 units

Production for April 2005 amounted to 210 batches. The relevant statistics follows

The management has noted that actual costs per batch deviate somewhat from standard costs per batch. Required: Prepare a statement which will contain a detailed explanation of the di  ff erence between the actual costs and standard costs  Solution: Data for Resource Variance  Particulars

Budgeted (1 FG) Qty.

Rate

Amount

Standard (21,000) Qty.

Rate

(�)

Mat (kg) Labour (hrs.) V OH (hours)

Sl. No.

0.6 0.36 0.36

4.50 8.25 4.75

Particulars

2.7 2.97 1.71

Amount

Actual (21,000) Qty.

Rate

Amount

(�)

12,600 7,560 7,560

4.50 8.25 4.75

56,700 62,370 35,910

(�)

13,000 7,920 7,920

Statement of Variances Basis

4.70 8.45 4.545

61,100 66,924 36,000

Amount (�)

1.

Material Price Variance

(4.50 – 4.70) × 13,000 (S.P. – A.P.) × A.Q.

2,600 (A)

2.

Material Usage Variance

(S.Q. – A.Q.) × S.P. (1,26,00 – 13,000) × 4.50

1,800 (A)

3.

Material Cost Variance

S.C. – A.C. 56,700 – 61,100

4,400 (A)

4.

Labour Rate Variance

(S.R. – A.R.) × Actual Working Hours (8.25 – 8.45) × 7920

1,584 (A)

5.

Labour Efficiency Variance

(Standard Hrs. – Actual Working Hours) ×. S.R. (7,560 – 7,920) × 8.25

2,970 (A)

6.

Labour Cost Variance

S.C. – A.C. 62,370 – 66,924

4,554 (A)

7.

Variable OH Expenditure Variance

(S.R. – A.R.) × Actual Working Hours (4.75 – 4.545) × 7,920

1,626 (F)

8.

Variable OH Efficiency Variance (Standard Hrs. – Actual Working Hours) × S.R. (7,560 – 7,920) × 4.545

1,636 (A)

9.

Variable OH Cost Variance S.C. – A.C. 35,910 – 36,000

10 (A)

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Question 35: A Ltd., operates a system of standard costs. Following information is available: Actual: Materials Consumed

�

1,89,000

(3,600 units at � 52.50 per unit) Direct Wages 22,100 Fixed Expenses 1,88,000 Variable Expenses 62,000 Output during the period was 3,500 units of finished product. For the above period, the standard production capacity was 4,800 units and the break up of standard cost per unit was as under: Particulars Amount (�) Materials (one unit @ 50 per unit) 50 Direct wages 6 Fixed expenses 40 Variable expenses 20 Total standard cost per unit 116

The standard wages per unit is based on 9,600 hours for the above period at a rate of �3.00 per hour. 6,400 hours were actually worked during the above period, and in addition, wages for 400 hours were

paid to compensate for idle time due to breakdown of a machine and overall wage rate was ` 3.25 per hour. Required: Compute the following variances with appropriate workings: 1:- Direct Material Cost Variance 2:- Material Usage Variance 3:- Wage Rate Variance 4:- Idle Time Variance 5:- Fixed Expenses Expenditure Variance 6:- Fixed Expenses Capacity Variance 7:- Total Cost Variance. 8:- Material Price Variance 9:- Direct Labour Cost Variance 10:- Labour E  fficiency Variance 11:- Variable Expenses Variance 12:- Fixed Expenses Volume Variance 13:- Fixed Expenses E  fficiency Variance

Solution: Particulars

Mat (unit) Labour (hrs.) V OH (hrs.)

Budgeted (1 Unit)

Standard (3,500)

Qty.

Rate

Amount (�)

Qty.

1 2 2

50 3 10

50 6 20

3,500 7,000 7,000

Rate Amount (�) 50 1,75,000 3 21,000 10 70,000

Actual (3,500) Qty.

Rate

3,600 6,800 6,400

52.50 3.25 9.6875

Amount (�)

1,89,000 22,100 62,000

Statement of Variances 1.

Material Cost Variance

S.C. – A.C. 1,75,000 – 1,80,000

1400 (A)

2.

Material price Variance

(S.R. –A.R>) X AQ (50 – 52.50) X 3600

9000 (A)

3.

Material usage Variance

(S.Q. –A.Q.) X S.R. (3,500 – 3,600) X 50

5,000 (A)

4.

Labour Cost Variacne

S.C. –A.C. 21,000 – 22.100

1,100 (A)

5.

Wage Rate Variance

(S.R. –A.R>) X A.P. Hrs (3 – 3.25) X 6,800

1,700 (A)

6.

Labour Efficiency Variance

(S.Hrs – A.W. Hrs) X S.R (7,000 – 6,400) X 3

1,800 (F)

7.

Idle time Variance

1,200 (A)

8.

Variable Expenses Variances

Idle Hrs. X S.R. (400 X 3) S.C> -A.C. 70,000 – 62,000

9 10

Fix OH Expenditure Variance FIx OH Volumne Variance

11

Fixed Exp.(OH) Capacity Variance

12

Fixed Expenses(OH) Efficiency Variance

13.

Total Cost Variance

8000 (F)

Budget –Actual 1,92,000 – 1,88,000 Recovered – Budget 1,40,000 – 1,92,000

4000(F) 52,000(A)

(A. W. HRs – Bud.. Hrs) X R.R. (6,400 – 9,600) X 20 (S.Hrs-A.W.Hrs)X R.R. (7,000 – 6,400) X 20

64,000 (A) 12,000(F)

--------------------------------------------------------------------------------------------------------------------------------------Question 36: Z Ltd uses standard costing system in manufacturing of its single product ‘M.’ The standard cost per unit of M is as follows: �

Direct materials: 2 m @ � 6 per m

12.00

Direct labour: 1 hour @ � 4.40 per hour

4.40

Variable overhead: 1 hour @ � 3 per hour

3.00

19.40 During July, 1993, 6000 units of M were produced and the related data are as under: Direct material acquired – 19000 m @ �5.70 per m. �

Material consumed – 12670 m.

Direct labour - ? Hours@ � ? per hour

27,950

Variable overheads incurred

20,475

The variable overheads efficiency variance is � 1,500 adverse. Variable overheads are based on direct labour hours. There was no stock of raw material in the beginning.

Required: Compute the missing figures and work out all the relevant variance. Solution: Budgeted (1 FG)

Mat (Meter) Labour (hrs.) V OH (hrs.)

Qty.

Rate

2 1 1

6 4.40 3

Amount (�) 12 4.40 3

Standard (6,000) Qty.

Rate

12,000 6,000 6,000

6 4.40 3

Amount (�) 72,000 26,400 18,000

Actual Qty.

Rate

12,670 6,500 (W.N. 1) 6,500 (W.N. 1)

5.70 4.3 3.15

Amount (�) 72,215 27,950 20,475

Statement of Variances 1.

Material Price Variance

(S.R>- A.R>) X A.Q. (6 – 5.70) X 12,670

2.

Labour Rate Variance

(S.R> - A.R> ) X A.Pay Hr (4.40 – 4.30) X 6,500

3,801 (F)

650 (F) 975 (A)

3.

Variable OH Expenditure Variance

(S.R> -A.R.) X A.W. Hr (3 – 3.15 ) X 6,500 4,020(A)

4.

Material Usage Variance

(S.Q. –A.Q>) X S.R. (12,000 – 12,670) X 6 2,200(A)

5.

Labour Efficiency Variance

(S. HR – A.W.Hr ) X S.R. (6,000 – 6,500) X 4.40 1,500(A)

6.

VOH Efficiency Variance

(S. Hr – A.W. Hr ) X S.R. (6,000 – 6,500) X3 215(A)

7.

Material Cost Variance

8.

Labour Cost Variance

9.

Variable OH Cost Variance

S.C. – A.C. 72,000 – 72,215 1,550(A) S.C. – A.C. 26,400 – 27, 950 S.C – A.C. 18,000 – 20,475

2,475(A)

Working Notes: 1. Calculation of Actual Working Hours Variable OH Efficiency variable = (S. Hr. – A.W.Hr) × S.R.  – 1,500 = (6,000 – A.W.Hr) × 3  – 500 = 6,000 – A.W.Hr Actual working hour = 6,000 + 500 = 6,500 Hrs. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Question 37:- Mr M provide the following information relating to 1,000 units of product ‘ZED’ during the

month of April, 1993:

Standard price per kg of raw-material

�3

Actual total direct material cost

� 10,000

Standard direct labour hours Actual direct labour hours

1,600 1,800

Total standard direct labour cost

� 8,000

Standard variable overhead per direct labour hour

� 1

Standard variable overhead per unit of ZED

� 1.60

Total standard variable overhead

�1,600

Actual total variable overheads

�1,620

The material usage variance is ` 600 adverse and the overall cost variance per unit of ZED is � 0.07 adverse as compared to the total standard cost per unit of ZED of � 21.

Required: Compute the following Standard quantity of raw material per unit of ZED. Standard direct labour rate per hour. Standard direct material cost per unit of ZED. Standard direct labour cost per unit of ZED. Standard total material cost for the output. Actual total direct labour cost for the output. Material price variance. Labour rate variance. Labour efficiency variance. Variable overhead expenditure variance. Variable overheads efficiency variance.

Note: Key calculation should form part of the answer. = 6,500 Hr.

Solution:-

Statement of Missing Variances

S.No. A B C D E F G

Particulars Standard Quantity of Raw Material/unit Standard Direct Labour Rate/Hour Standard Direct Material Cost/unit Standard Direct Labour Cost/unit of Z.E.D. Standard total material cost for the output Actual Total Direct labour cost for output Material Price Variance

H

LAbour Rate Variance

I

Labour efficiency variance

J

Varaicne OH Expenditure Variance

Basis 3,800/1.00 in (W.N.1) 8,000/1,600(W.N.1) 11,400/1,000 (W.N. 1) 8,000/1,000(W.N. 1) W.N.-1 W.N.- 1 (S.R –A.R.) X AQ (3 – 2.5 ) X 4000 (S.R. -A.R.) X A. Day. Hrs ( 5 – 5.25 ) X 1,800 S. Hrs – A.W. Hrs ) X S.R. (1,600- 1,800) X5 (S.R. – A.R.) X A. W. Hrs.

Amount 3.8 Kg 5.00 11.40 8 11,400 9,450 2000(F) 450(A) 1,000(A) 180(F)

K

( 1 – 0.90) X 1800 (S. Hrs – A.W. Hrs) X S.R. 1600 – 1800) X1

Variable OH Efficiency variance

200(A)

Working Notes: 1. Data for Resource Variance Standard/Budget (1,000 FG) Qty.

Rate

Actual (1,000 FG)

Amount Cost per Unit

Qty.

Rate

( �)

Material Labour hours Variable overhead hours

3,800 1,600 1,600

3 5 1

Amount

Cost per unit

(�)

11,400 8,000 1,600

11.4 (B.f.) 8 1.6

4,000 (W.N. 2) 1,800 1,800

2.5 5.25 0.90

10,000 9,450 1,620

21

10 9.45 (B.f ) 1.62 21.07(W.N.3)

2. Material Usage Variance=  (S.Q. – A.Q.) × S.R.  – 600 = (3,800 – A.Q.) × 3  – 200 = 3,800 – A.Q. A.Q. = 3,800 + 200 = 4,000 kg 3. Over all cost variance =  S.C. – A.C. 0.07 = 21 – A.C. Actual cost = 21 + 0.07

= � 21.07 ---------------------------------------------------------------------------------------------------------------------------------------

Question 39: K Limited uses standard costs and flexible budgets for control purposes. The following information is given: 1. Standard and budgeted data The standard material allowed per unit is 4 kg at a standard price of � 0.75 per kg. Budgeted direct labour hours for a four week period were 80,000 hours at a budgeted cost of � 1,52,000. Budgeted variable production overhead for 80,000 hours was � 96,000. 2. Details for four-week period ended 29th April 1988 were: �

Incurred: Direct wages

1,63,800

Variances: Direct wages rate, �0.20 per hour adverse. Direct Materials price (Calculated on purchases at time of receipt at Re. 0.05 per kilogram) � 9,000 favourable. Direct material usage � 1,500 adverse. Variable production overhead � 2,200 favourable. Variable production overhead efficiency � 2,400 adverse, Production 38,000 units. There were no stocks at beginning of period, but there were 26,000 kg of direct materials in stock at 29th April 1988.

Required: State for the period The number of kilograms of direct material purchased. The number of kilograms of direct material used above the standard allowed. The variable production overhead expenditure variance. The actual hours worked. The number of standard hours allowed for the production achieved.

Solution:

Data for Variance Budgeted Qty.

Rate

Standard Amount

Qty.

Rate

Actual Amount

(�)

Material Labour Variable overhead

4 2 2

0.75 1.9 1.2

Qty.

Rate

( �)

3 3.8 2.4

1,78,000 76,000 76,000

0.75 1.9 1.2

1,33,500 1,44,400 91,200

Amount (�`)

1,54,000 78,000 78,000

0.7 2.1 1.141

1,07,800 1,63,800 89,000

Statement of Required Information  Sl. 1. 2.

3. 4. 5.

Particulars Number of kilogram of direct material purchases The number of kilograms of direct material used above the standard allowed The variable production overhead expenditure variance The Actual Hours Worked The number of standard hours allowed for the production achieved

Variable overhead cost Variance = SC – AC 2,200 = 91,200 – 78,000 × AR 9,12,000 – 2,200 78,000 Working Notes: 1. Calculation of Actual Hours

Basis Amount (W.N. 1) 1,80,000 kg (W.N. 3) 2,000 kg

(W.N. 4) 4,600 (F) (W.N. 1) 78,000 Hrs. (W.N. 5) 76,000 Hrs.

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Question 41: On 1st April, 1998, ZED company began the manufacture of a new electronic gadget. The company installed a standard costing system to account for manufacturing costs. The standard costs for a unit of the product are as under: �

15.00 10.00 7.50 32.50

Direct Material (3 kg at � 5 per kg) Direct Labour (0.5 hour at � 20 per hour) Manufacturing Overhead (75% of direct labour cost) Total Cost

The following data was obtained from Zed Company’s record for April 1998 Particulars

Debit

Sales Sundry Creditor (For purchase of direct materials in April 1998) Direct Material Price Variance Direct Material Usage Variance Direct Labour Rate Variance Direct Labour Efficiency Variance

Credit

 — �  1,25,000  — �` 68,250 3,250  — 2,500  — 1,900  —  — 2,000

The actual production in April 1998 was 4,000 units of the gadget, and the actual sales for the month was 2,500 units. The amount shown above for direct materials price variance applies to materials purchased during April 1998. There was no opening stock of raw materials on 1st April, 1998. Required: Calculate for April 1998 the following: (i) Standard direct labour hours allowed for the actual output achieved. (ii) Actual direct labour hours worked. (iii) Actual direct labour rate. (iv) Standard quantity of direct materials allowed (in kg) (v) Actual quantity of direct materials used (in kg) (vi) Actual quantity of direct materials purchased (in kg) (vii) Actual direct materials price per kg --------------------------------------------------------------------------------------------------------------------------------------Question 42: A Ltd. has a manufacturing division which makes a product to which the following details relate Particulars Per unit Materials 5 kgs at � 2 � 10 Direct labour 12 hours at � 2 �24 Variable overheads �

�

Relevant fixed overhead are budgeted at ` 10,000 per month and planned output is 2,000 units per month. The selling price is � 55 per unit. An incentive scheme is in operation in the division concerned, whereby employees are paid a bonus of 15% of the standard cost of materials saved and 50% of direct labour time saved values at standard direct labour

hour rate. During a recent month when output was 1,800 units, the following actual results were recorded:

Particulars

Amount (�)

Direct material used (8,500 kg) Direct wages (20,000 hours) Variable Overhead Fixed overhead

17,200 42,000 22,000 9,800

Net profit

91,000 4,000

Sales

95,000

Required: (a) Calculate the variance, which occurred during the month. (b) Calculate the total bonus payments to employees in the division.

Solution: Calculation of Different Variances Sl. 1.

Particulars Material Price Variance

Basis

(S.R. – A.R.) × A.Q. (2 – 2.0235) × 8,500

Amount 200 (A)

2.

Material Usage Variance

(S.Q. – A.Q.) × S.R. (9,000 – 8,500) ×2

1,000 (F)

3.

Material Cost Variance

800 (F)

4.

Labour Rate Variance

S.C. – A.C. (18,000 – 17,200) (S.R. – A.R.) × Actual Payment Hours (2 – 2.1) × 20,000

5.

Labour Efficiency Variance

2,000 (A) 3,200 (F)

6.

Labour Cost Variance

(S.Hr – Actual Working Hours) × S.R. (21,600 – 20,000) × 2 S.C. – A.C. 43,200 – 42,000

7.

V – OH Expenditure variance (S.R. – A.R.) × Actual Working Hours (1 – 1.1) × 20,000

2,000 (A)

8.

Variable – OH Efficiency variance

(Standard Working Hours – Actual Working Hours) S.R. (21,600 – 20,000) × 1

1,600 (F)

9.

Variable overhead cost variance

S.C. – A.C. (21,600 – 22,000)

400 (A)

10.

Fixed overhead expenditure Budgeted – Actual variance (10,000 – 9,800)

200 (F)

11.

Fixed overhead volume variance

Recovered – Budgeted (9,000 – 10,000)

1,000 (A)

12.

Fixed overhead cost variance

Recovered – Actual (9,000 – 9,800)

800 (A)

1,200 (F)

(b) Statement of Bonus Particulars

Amount (�)

(i) 15% of S.C. of Material saved (S.Q. – A.Q) × S.C. × 15% (9,000 – 8,500) × 2 × 15% (ii) 50% of S.C. of lab. Hrs. saved 50% × 2 × (21,600 – 20,000)

150 1,600

Total Bonus payable Working Notes:

1,750

Data for Resource Variances Budgeted Output 2,000 units or 24,000 hrs. Standard hrs./units 21,600 Hrs or 1,800 units

Recovery Rate � 5 / unit

Budgeted fixed-overhead 10,000

Actual Hrs. 20,000

or �` 0.4167 / hr.

Recovered (�) 9,000 (21,600 0.4167)

Actual (�) 9,800

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Question43: A company manufactures two products X and Y. Product X requires 8 hours to produce while Y requires12 hours. In April, 2004, of 22 effective working days of 8 hours a day, 1,200 units of X and 800 units of Y were produced. The company employs 100 workers in production department to produce X and Y. The budgeted labour hours are 1,86,000 for the year.

Required: Calculate Capacity, Activity and E  fficiency ratio and establish their relationship.

-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Question 45: The following is the information provided by Tulsian Ltd. Product

Budgeted Sales Quantity Units

A B

Budgeted Selling Price per unit

60 40

Standard Cost Per unit

20 10

Actual Sales Quantity Units

Actual Selling Price per unit

(�)

15 4

44 66

Actual Cost Per unit

(�)

(�

25 5

16 5

Required: 1. Calculate all the sales variances (a) on sales value basis (b) on sales margin value basis 2. Reconcile the standard profit with actual profit.

Solution:

Data for Sales Variance Budgeted Sale

Product

Qty.

Rate

Amount (�)

Standard Ratio for actual mix

Actual Sale Qty.

Rate

Amount (�)

A B

60 40

20 10

1,200 400

66 44

1,600

110

44 66

25 5

1,100 330 1,430

Statement of Sales Variances Sl. 1.

2.

3.

4.

5.

Particulars Sales Value Variance

Sales Price Variance

Sales Volume Variance

Sales Mix Variance

Sales Yield Variance

Basis Budgeted Sales – Actual Sales (1,600 – 1,430) (B.S.P.–A.S.P.) × A.Q. A : (20 – 25) × 44 = 220 (F) B : (10 – 5) × 66 = 330 (A) (B.Q. – A.Q) × B.S.P. A : (60 – 44) × 20 = 320 (A) B : (40 – 66) × 10 = 260 (F) (S.R. for Actual Mix – Actual Ratio for Act Mix) × B.S.P. A : (66 – 44) × 20 = 440 (A) B : (44 – 66) × 10 = 220 (F) (S.R. for Bud. Mix – Standard Ratio for T.A. Mix.) × B.S.P. A : (60 – 66) × 20 = 120 (F) B : (40 – 44) × 10 = 40 (F)

Amount

170 (A)

110 (A)

60 (A)

220 (A)

160 (F)

Reconciliation Statement  Budgeted profit

540

Adjust Sales Variance: 110 (A) 60 (A)

Sales price variance Sales Volume Variance

Adjust cost variances:

26 (F)

(1060 – 1034) Actual rofit

396

Working Notes: 1. Statement of Profit Budget

Sales Value A: 60 × 20 B: 40 × 10 Sales Value A: 60 × 20 B: 40 × 10 Less: Cost Sales Value

Actual

1,200 400

1,600 (1,060)

900 160

1,600 (1,060)

540

Sales Value A: 44 × 25 B: 66 × 5 Sales Value A: 44 × 25 B: 66 × 5 Less: Cost Sales Value

1,100 330

1,430 (1,034)

704 330

1,430 (1,034)

396

Subject to Checking --------------------------------------------------------------------------------------------------------------------------------------Question 47: Stand Cost Corporation produces three products: A, B and C. The master budget called for the sale

of 10,000 units of A at � 12. 6000 units of B at � 15 and 8,000 units of C at �9. In addition, the standard variable cost for each product was � 7 for A, �` 9 for B and ` 6 for C. In fact, the firm actually produced and sold 11,000 units of A at � 11.50, 5,000 units of B at � 15.1and 9,000 units of C at � 8.5.The firm uses two input to produce each of the products X and Y. The standard price per unit of material X is � 2 and for a unit of material Y is �

1. The materials budgeted to be used for each product were: Products Materials X Units A 2 B 4 C 1

Y Units 3 1 4

The firm actually used 54,000 units of X at a cost of ` 1,09,620 and 72,000 units of Y at a cost of � 73,000.

Required: Determine the mix, quantity and rate variances for sales as well as the yield, mix and price variance for materials.

Solution: Sales Variances (Sale Value Method) Budgeted Sales Product

A B C

Qty. Units

10,000 6,000 8,000 24,000

Actual Sales

Rate (�)

Amount(�)

Oty. Units

Rate (�)

Amount �

12 15 9

1,20,000 90,000 72,000 2,82,000

11,000 5,000 9,000 25,000

11.50 15.10 8.55

1,26,500 75,500 76,950 2,78,950

Actual Quantity Budgeted Price

1,32,000 75,000 81,000 2,88,000

Alternative Solution (Sales Margin Method) Basic Calculation Budgeted Margin

Actual Margin

Actual Quantity X Budgeted Price (`�)

Product

A B C

Qty. Units

10,000 6,000 8,000 24,000

Rate (�)

5 6 3

Amount (�)

Qty. Units

50,000 36,000 24,000

11,000 5,000 9,000

1,10,000

25,000

Rate (�)

4.50 6.10 2.55

Amount (`�)

49,500 30,500 22,950

55,000 30,000 27,000

1,02,950

1,12,000

Material Variances: Basic Calculations Standard and actual costs of material for actual output i.e. 11,000 untis of A, 5,000 units of B and 9,000 untis of C and standard cost of actual input material. Material

Standard Cost Qty Units

X Y

51,000 74,000 1,25,000

Actual Cost Qty. Units

Amount (�)

Actual quantity × Standard price

Rate (�)

Amount (�)

Rate Amount (�)

2 1

1,02,000 74,000

54,000 72,000

1,09,620 73,000

1,08,000 72,000

1,76,000

1,26,000

1,82,620

1,80,000

---------------------------------------------------------------------------------------------------------------------------------------

Question 50: File and Smile Associates undertake to prepare income tax returns for individual for a fee. Their advice to their clients is to pay the proper tax and relax. In order to arrive at the proper scales of fees and assess their own performance, they have a good system. They use the weighted average method and actual costs for financial reporting purposes. However, for internal reporting they use a standard cost system. The standards on equivalent performance have been established as

follows: Labour per return Overhead per return

5 hrs @ � 40 per hour 5 hrs @ � 20 per hour

For March 1988 performance, budgeted overhead is � 98,000 for the standard labour hours allowed. The following additional information pertains to the month of March 1988.

Required: Compute  (a) For each cost element equivalent units of performance and the actual cost per equivalent unit. (b) Actual cost of return in process on March 31. (c) The standard cost per return and (d) The total labour rate and labour e  fficiency variance as well as total overhead volume and overhead budget variances.

Solution: (a) Statement of Cost (Weighted Avg.) Labour

Overhead

Current Opening Cost

�1,78,000 � 12,000

�5,000

Total

� 1,90,000

� 95,000

� 90,000

Qty. (WN1) (B)

1,000

1,000

Rate (� p.u) (A) ÷ (B)

� 190

� 95

(a) Calculation of Actual cost of closing W.I.P. Labour (190 × 100) Overhead (95 × 100)

19,000 9,500 28,500

Standard Cost 

(b) Labour: 5 Hrs X 40

200

Overhad: 5 hHR X 20

100 300

(d) Statement of Variances Sl. No. Particulars 1. Labour Rate Variance

2. 3.

4.

Labour Efficiency Variance Overhead Volume Variance

Overhead Budget/Expenditure Variance

Basis (S.R. – A.R.) × Actual Payment Hrs 1,78,000 40 – 4,000 × 4,000 (S.Hr – A.W. Hr) × S.R. (4,750 – 4,000) × 40 Recovered overhead – Budget overhead 95,000 – 98,000 Budget overhead – Actual overhead 98,000 – 90,000

Figures 18,000 (A)

30,000 (A)

3,000 (A) 8,000 (F)

Working Notes: 1. Statement of Equivalent Production (Weighted Avg. Method) Particulars

Opening W.I.P. Units Started

200 Transferred 825 Closing W.I.P. (80%) 1,025

Labour

900 125 1,025

900 100 1000

Overhead

900 100 1000

 Statement of Equivalent Production (FIFO) for Variance Analysis Labour

Opening W.I.P. (25 k) Units Started

200 Opening W.I.P. Current 825 Transferred Closing W.I.P. (80%) 1,025

200 700 900 125 1,025

Overhead

150 700 100

150 700 100

950

950

-----------------------------------------------------------------------------------------------------------------------------Question 51: (Standard Process Costing including Reconciliation – Equivalent production FIFO method): A processing company uses Standard Process Costing method. The standard process cost card is as follows:

Stocks: Opening W.I.P. 250 kg Degree of completion: Material-100% Labour and overhead – 60%. Closing W.I.P 450 kgs. Degree of completion: Material-100%, Labour and overheads 20% . Finished Stock-1,200 kgs.

The company uses FIFO method for valuation of stocks.

Required:

Computation of cost variances in as much detail as possible and process Cost Reconciliation statement.

Solution: S tatement of Variances S.NO. Particulars

Basis

�

1

Material Price Variance

3000(A)

2

Material usage variance

3

Material cost variance

4

Labour Rate variance

5

Labour Efficiency variance

6

Labour cost variance

7

Fixed overhead volume variance

8

Fixed overhead efficiency variance

9

Fixed overhead capacity variance

10

Fixed overhead expense variance

11

Fixed OH Cost variance

(S.P. – A.P. ) X A.Q. (10 – 11.034) X 2900 (S.Q. – A.Q.) X S.R. (2800 – 2900) X 10 S.C.- A.C. 28,000 – 32,000 (S.R. – A.R.) X A.pay. HRs ( 20 – 20,606) X 3300 (S. Hrs- a.W.Hour) X S.R. (3,420 – 3,300) X 20 S.C. – A.C. 68,400 – 68,000 Recovered – Budget 1,02,600 – 90,000 (S. Hr. – A.W. Hr.) X S.R. (3,420- 3,300) X30 (A.W> Hr – Bud. Hr) X R.R. (3,300 – 3,000) X 30 Budget – Actual 90,000 – 88000 Recovered – Actual 1,02,600 – 88,000

1000(A) 4000(A) 2000(A) 2400(F) 400(F) 12,600 (F) 3600 (F) 9000 (F) 2000 (F) 14,600 (F)

Working Note 1 Statement of Equivalent Production (FIFO) Material

OP. W.I.P. (100%, 60%) 250 Opening 250 Introduced 1,400 Current 950 Transferred 1,200 Closing W.I.P. (80%) 450 1,650

Labour & Overhead

 — 950

100 950

450

1,650

90 1,400 1,140 (Actual output for material) (Actual output for labour)

Working Note 2 Data for Resource Variance  Qty.

Standard Rate Amount

Qty.

Actual Rate

�

Material (kg) (1,400) Labour (1,140)

Working Note 3

2,800 3,420

10 20

28,000 68,400

Amount �

2,900 3,300

11.034 20.60

32,000 68,000

-------------------------------------------------------------------------------------------------------------------------------------------------------

Question 52: A single product company has prepared the following cost sheet based on 8,000 units of output �

per month:

Direct Materials 1.5 kg @ � 24 per kg

36.00

Direct Labour 3 hrs @ � 4 per hr

12.00

Factory Overheads Total

12.00 60.00

The flexible budget for factory overheads is as under:

The actual results for the month of October 2002 are given below: Direct Materials Purchased and consumed were 11,224 kg at ` 2,66,570. Direct Labour hours worked were 22,400 and Direct Wages paid amounted to ` 96,320. Factory overheads incurred amounted to ` 96,440 out of which the variable overhead is ` 2.60 per Direct Labour hour worked. Actual output is 7,620 units. Work-in-process: Opening WIP 300 units Materials 100% complete Labour and Overheads 60% complete Closing WIP 200 units Materials 50% complete Labour and Overhead 40% complete

Required: Analyze the variances 

Solution: Statement of Variances Sl. No. Particulars 1. Material Price Variance

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

Material Usage Variance

Material Cost Variance

Basis (S.P. – A.P.) × A.Q. (24 – 23.75) × 11,224

(S.Q. – A.Q.) × S.P. (11,130 – 11,224) × 24 S.C. – A.C. 2,67,120 – 2,66,570

Variable Overhead Expenditure Variance (S.R. – A.R.) × A.W.Hr (2.4 – 2.6) × 22,400 Variable Overhead Efficiency Variance

Fixed overhead expenditure variance

Fixed overhead volume variance

Fixed overhead efficiency variance

Fixed overhead capacity variance

Labour rate variance

Labour efficiency variance

Figures

2,806 (F)

2,256 (A)

550 (F)

4,480 (A)

(S.Hr – A.W.Hr) × S.R. (22,560 × 22,400) × 2.4

384 (F)

Budget – Actual 38,400 – 38,200

200 (F)

Recovered – Budget 36,096 – 38,200 (S.Hr – A.W.Hr) × S.R. (22,560 – 22,400) × 1.6

2,304 (A)

256 (F)

(Bud. Hr. – A.W.Hr) × S.R. (24,000 – 22,400) × 1.6

2,560 (A)

(S.R. – A.R.) × A.Pay. Hrs (4 – 4.3) × 22,400

6,720 (A)

(S.Hr – A.W.Hr) × S.R. (22,560 – 22,400) × 4

640 (F)

Working Note 1 Calculation of Variable – Overhead – Rate per unit Change in overhead 92,400 – 81,000 10,800 Change in output 7,500 – 6,000 1,500

Working Note 2 Statement of Equivalent Production  Particulars

Material

Lab – OH

Opening W.I.P. (100%, 60%) Introduced (B.f )

300 7,520

Opening Current Transferred Closing W.I.P. (50%, 40%)

7,820

300 7,320 7,620 200

 — 7,320

120 7,320

100

80

7,820

7,420

7,520

Working Note 3 Data for Resource Variance Particulars

Standard Qty.

Material Labour Variable overhead

7,420 × 1.5 = 11,130 7,520 × 3 = 22,560 7,520 × 3 = 22,560

Rate

Actual Qty.

Rate

11,224 22,400 22,400

23.75 4.3 2.60

Amount (�)

24 4 7.2 = 2.4 3

2,67,120 90,240 54,144

Amount (�)

2,66,570 96,320 58,240

---------------------------------------------------------------------------------------------------------------------------------------

Question 53: Standard cost sheet per unit of output is as under Direct material 3 Pcs. @ � 2.15 Direct labour: Department A 2 hrs @ � 1.75

�6.45

3.50 6.00

Department B 4 hrs @ � 1.50 Overheads: Department A 2 hrs @ � 0.50

1.00 4.00

� 9.50 � 5.00

Department B 4 hrs @ � 1.00 Transactions for the period are as under: Materials purchased and consumed:

�

8,600 pcs. @ �2.50 each Labour Time Spent Department A. 5,200 hours Department B. 12,000 hours There is no change in labour rates: Actual factory overheads are:

Department A� 3,000 Department B. � 12,500 Units produced: Department A. 2,800 Department B. 2,800 Budgeted overheads:

Department A. � 3,000 Department B. � 12,000 Pass the necessary Journal Entries to record the above transactions under single plan.

Required: Show the Standard Cost Card. (b) Show the journal entries to record the transactions and disposal of the variances Narrations are not required for journal entries). Show (i) The Material Control Account (ii) The Work-in-progress Control Account.

Solution:

Journal Entry (Under Single Plan) in Department A Particulars

1.

2. 3.

4.

5. 6.

7.

Material Control A/C Material Price Variance A/c To creditors A/c (Being Material purchased) Creditors A/c To Bank

Dr (S.R. × A.Q) Dr (S.R. – A.R.) × A.Q.

Amount (`�) 18,490 3,010

Amount (�)

21,500 Dr

21,500 21,500

W.I.P. Control A/c Material Usage Variance A/c. To Material control A/c. (Being goods issued to production)

Dr (S.Q. × A.R.) (S.Q. × A.Q.) × A.R. (A.Q. × A.R.)

18,060 430

Wages Control A/c. To wages payable A/c. (Being labour expenses due)

Dr (S.R. × A.W.Hr) (S.R. × A.P.Hr)

9,100

Wages payable A/c. To Bank A/c

Dr

9,100

18,490

9,100

9,100

W.I.P. control A/c To wages control A/c To labour Efficiency variance A/c

Dr.

W.I.P. Control A/c Overhead cost variance A/c To Bank

Dr Dr

9,800 9,100 700 2,800 200

3,000

8.

Department – B A/c To W.I.P. Control A/c

Dr

30,660 30,660

(Being balance of W.I.P. Control A/c of department ‘A’ transferred to department – B)

In Department – B Journal Entry Particulars

Amount (�)

1. W.I.P. Control A/c To Department A A/c.

Dr

2. Wages Control A/c Labour Rate variance A/c To wages payable A/c

Dr Dr

3. Wages Payable A/c To Bank

Dr

4. W.I.P. control A/c Labour Efficiency variance A/c To wages control A/c

Dr Dr

5. W.I.P. control A/c Overhead cost variance A/c To Bank

Dr Dr

Amount (�)

30,660 30,660 18,000 Nil 18,000 18,000 18,000 16,800 1,200 18,000 11,200 1,300 12,500

---------------------------------------------------------------------------------------------------------------------------------------

RECONCILIATION BASED QUESTION Question 56: The budget output of a single product manufacturing company for 1984 –85 was 5,000 units. The financial results in respect of the actual out put of 4,800 units achieved during the year were as under:

Particulars

Direct material Direct wages Variable overheads Fixed overheads Profit Sales

Amount � 29,700 44,700 72,750 39,000 36,600 2,22,750

The standard wage rate is �4.50 per hour and the standard variable overhead rate is �7.50 per hour. The cost accounts recorded the following variances for the year: Variances Favourable �

Adverse (�)

Material Price Material usage Wage Rate Labour Efficiency Variable Overhead Expenses Variable Overhead Efficiency Fixed Overhead Expense Selling Price

 —  — 750  — 3,000  —  — 6,750

300 600  — 2,250  — 3,750 1,500  —

Required: Prepare a statement showing the original budget. Prepare the standard product cost sheet per unit. Prepare a statement showing the reconciliation of originally budgeted profit and the actual profit.

Solution: Statement showing standard cost sheet per unit and Original Budget Standard cost per

Particulars

unit (�)

Material (See WN 1) Labour (See WN 2) Variable overhead (See WN 3) Fixed overhead (See WN 4) Total Cost Profit Selling price (See WN 5)

Original Budget (�)

5,000 units

6 9 15 7.5

30,000 45,000 75,000 37,500

37.5 7.5

1,87,500 37,500

45

2,25,000

Statement of Reconciliation (Marginal) Particulars

Budgeted Profit Sales Variance: Price Variance Volume Variance:

Amount (�)

37,500

(B.Q. – A.Q.) × (F.C. + Pro. P.U.) 200 × (7.5 + 7.5)

6,750 (F) 3,000 (A)

Cost Variances: Material Cost Variance:

Material price variance 300 (A) Material usage variance 600 (A) Labour Cost Variance: Wage rate variance 750 (F) Labour efficiency variance 2,250 (A) Variable Overhead Cost Variance: Variable overhead expenses 3,000 (F) Variable overhead efficiency variance 3750 (A) Fixed Overhead Expenditure Variance Fixed Overhead Volume Variance

900 (A) 1,500 (A) 750 (A) 1,500 (A) N.A.

Actual rofit

36,600

Quantity Selling Price per unit Variable cost per unit (Material + Labour + Overhead) Contribution per unit Total Contribution Less: Fixed Cost

Budget 5,000 45 30 15 75,000 37,500

Actual 4,800 45 30 15 72,000 37,500

37,500

34,500

Profit

------------------------------------------------------------------------------------------------------------------------------------------------------Question 57: The Summarised results of a company for the two years ended December 31st are given below for 2 years: (� in lakh)

(� in lakh)

Sales 770 600 Direct Material 324 300 Direct wages 137 120 Variable Overheads 69 60 Fixed Overheads 150 80 Profit 90 40 As a result of re-organization of production methods and extensive campaigning, the company was able to secure an increase in the selling Price by 10% during year 2 as compared to the previous year. In year 1, the company consumed 1,20,000 kg. of raw materials and used 24,00,000 hours of direct labour. In year 2, the corresponding figures were 1,35,000 kg. of raw material and 26,00,000 hours of direct labour. Use the information given for the year 1 as the base year information to analyse the results of year 2 and to show, in a form suitable to the management, the amount each factor has contributed by way of price, usage, and volume to the change in profit  in year 2.

Solution:  Let Selling Price be �100 per unit for I year. Then Sales Sales Price Quantity Sold

IInd year 7,70,00,000 110 7,00,000

Reconciliation Statement

Ist Year 6,00,00,000 100 6,00,000

Particulars

` in lakh

Basis

Budgeted Profit

40

Sales Variance

Price Variance = (B.S.P. – A.S.P.) × A. Qty = (100 – 110) × 7,00,000 Volume Variance = (B.Q. – A.Q.) × Budgeted Price p.u. = (6,00,000 – 7,00,000) × 6.6666

Cost Variance

Fixed Overhead Volume Variance Recovered Overhead – Budgeted Overhead (93.33 – 80) Fixed Overhead Expenditure Variance (Budgeted Overhead – Actual Overhead) Material Price Variance = (S.R. – A.R.) × A.Q. Material Usage Variance = (S.Q. – A.Q.) × S.R. Labour Rate Variance = (S.R. – A.R.) × A.P. Hr. Labour Efficiency Variance = (S.Hr – A. Hr) × S.R. Variable Overhead Expenditure Variance = (S.R. – A.R.) × A.W. Hr Variable Overhead Efficiency Variance = (S.Hr – A. Hr) × S.R.

70 (F) 6.66 (F)

13.33 (F) 70 (A) 13.5 (F) 12.5 (F) 7 (A) 10 (F) 4 (A) 5 (F)

Actual Profit

90

Working Notes: 1. Data for Resource Variance Budget Material

Qty.

Standard

Rate (� in lakh)

Qty.

Rate (� in lakh)

Amount

Material Labour Variable Overhead

1,20,000 24,00,000 24,00,000

250 5 2.5

300 120 60

480

Actual Qty.

Rate

Amount

1,40,000 250 28,00,000 5 28,00,000 2.5

350 140 70

540

(� in lakh)

Amount

1,35,000 240 26,00,000 5.269 26,00,000 2.65

324 137 69

530

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Question 63: The Britten Co. Ltd manufactures a variety of products of basically similar composition. Subjecting the various raw materials to a number of standardised operations each major series of operations being carried out in a different department carries out Production. All products are subjected to the same initial processing which is carried out in departments A, B and C; the order and extent of further processing then depending upon the type of end product to be produced. It has been decided that a standard costing system could be usefully employed within Britten and a pilot scheme is to be operated for six months based initially only on department B, the second department in the initial common series of operations. If the pilot scheme produces useful results then a management accountant will be employed and the system would be incorporated as appropriate throughout the whole firm.

The standard cost per unit of output of department B is: Particulars

Direct labour (14 hours at � 2 per hour) Direct materials: 1. Output of department A (3 kg at � 9 per kg) 2. Acquired by and directly input to department B material × (4 kg at � 5 per kg.) Variable overhead (at � 1 per direct labour hour worked) Fixed production overheads: 1. Directly incurred by department B (note1) manufacturing overhead (per unit) 2. Allocated to department B general factory overhead (per unit) Standard cost per unit

Amount

27 20

3 8

Amount 28

47 14

11

� 100

In the first month of operation of the pilot study (month 7 of the financial year), department B had no work in progress at the beginning and the end of the month. The actual costs allocated to department B in the first month of operation were:

Particulars

�

Direct labour (6500 hours) Direct materials: I. Output of Department A (1400 Kg) (Note 2) II. Material X (1900 Kg.) Variable overheads Fixed overheads 1. Directly incurred manufacturing overhead 2. Allocated to department B (Note 3)

�

14,000 21,000 11,500 1,600 2,900

32,500 8,000 4,500 59,000

Note 1: Based on normal monthly production of 400 units Note 2: Actual cost of output of department A. Note 3: Based and allocated to departments in accordance with labour hours worked. The production manager feels that the actual costs of $59,000 for production of 500 units indicates considerable inefficiency on the part of department B. He says, “I was right to request that the pilot standard costing system be carried out in department B as I have suspected that they are inefficient and careless this overspending of $9,000 proves I am right’.

Required: (a) Prepare a brief statement which clearly indicates the reasons for the performance of department B and the extent to which that performance is attributable to department B. The statement should utilize variance analysis to the extent it is applicable and relevant. (b) Comment on the way the pilot standard costing system is currently being operated and suggest how its operation might be improved during the study period.

Solution: Data for Resource Variance Material Qty. Output of A X Material Labour Hr. Variable – OH

1,500 2,000 7,000 7,000

Standard Rate 9 5 2 1

Amount

Qty.

13,500 10,000 14,000 7,000 44,500

1,400 1,900 6,500 6,500

Actual Rate 15 6.05 2.1538 1.2308

Amount 21,000 11,500 14,000 8,000 54,500

(a) Statement of performance  Standard Cost Controllable Variances:

Material Usage Variance = (S.Q. – A.Q.) × A.R. A      → (1,500 – 1,400) × 9 = 900 (F) B      → (2,000 – 1,900) × 5 = 500 (F) Labour Efficiency Variance = (S. Hr – A.W. Hr) × S.R. (7,000 – 6,500) × 2 = 1000 (F) Fixed Overhead Efficiency Variance = (S. Hr – A. Hr) × S.R. (7,000 – 6,500) × 0.7857 Variable – OH Efficiency Variance = (S. Hr – A.Q. Hr) × S.R. = (7,000 – 6,500) × 1

Uncontrollable Variances:

Material Prices Variances = (S.R. – A.R.) × A.Q. Output of A      → (9 – 15) × 1,400 = 8,400 (A) Material X      → (5 – 6.05) × 1,900 = 2,000 (A) Labour Rate Variance = (2 – 2.1538) × 6,500 Variable overhead Expenses Variance = (1 – 1.2308) × 6,500 Fixed Overhead Expenses Variance = (4,400 – 4,500) Fixed Overhead Capacity Variance = (6,500 – 5,600) × 0.7857

Amount (�) 50,000

1,400 (F)

1,000 (F)

393 (F) 500 (F)

10,400 (A) 1,000 (A) 1,500 (A) 100 (A) 707 (F)

Actual Cost 59,000 Comment: It is better to apply the technique of standard witting not only on department B but also on other department (i.e. within the company). ---------------------------------------------------------------------------------------------------------------------------------------

PLANNING AND OPERATING VARIANCE Question 65: ABC Ltd produces jams and other products. The production pattern for all the products is similar first the fruits are cooked at a low temperature and then subsequently blended with glucose syrup citric acid and pectin are added henceforth to help setting. There is huge competition in the market because of which margins are tight. The firm operates system of standard costing for each batch of jam.

The standard cost data for a batch of jam are: Fruit extract

400 kg @ � 1 per kg

Glucose syrup

700 kg @ � 2 per kg

Pectin

99 kg @ � 1 per kg

Citric acid

1 kg @ �` 5 per kg

Labor 18 hrs. @ �2 per hour Standard processing loss 3%. As a consequence of unfavorable weather in the relevant year for the concerned crop, Normal prices in the trade were � 2 per kg for fruit extract although good buying could achieve some, The actual price of Syrup had also gone up by 20% from Standards. This was because of increase in customer duty of Sugar. The

actual results for the batch were: Fruit extract

428 kg @ � 4 per kg

Glucose syrup

742 kg @ �` 5 per kg

Pectin

125 kg @ � 2 per kg

Citric acid

1 kg @ � 6 per kg

Labour Actual output was 1164 kg of jam.

20 hr @ � 4 per hour

Required: (a) Calculate the ingredients planning variances that are deemed uncontrollable; (b) Calculate the ingredients operating variances that are deemed controllable; (c) Calculate the mixture and yield variance; Calculate the total Variance for the batch.

Solution: Data for Resource Variances Material Fruit Extract Glucose Syrup Pectin Citric Acid

Original Standard Qty. Rate (�)

Revised Standard Qty. Rate (�)

Qty.

400 700

400 1,400

400 700

800 1,680

428 742

4 5

1,712 3,710

99 5

99 1

99 5

125 1

2 6

250 6

1,904 36 1,940

1,200 18

4

5,678 80 5,758

99 1 1,200 18

Labour

1 2 1 5 2

2 24 1 5 2

2,584 36 2,620

1296 20

Actual Rate (�)

(a) Statement of Uncontrollable Planning Variances Ingredients

Traditional Variance (Original – Actual)

Planning Variances (Original Standard – Revi. Stan.)

Operating Variances (Revised Stand – Actual)

Price Variance Fruit Extract (D.M.) Glucose Syrup Pecting Citric Acid Labour Variance

400 – 1,712 = 1,312 (A) 1,400 – 3,710 = 2,310 (A) 99 – 250 = 151 (A) 5 – 6 = 1 (A) 35 – 80 = 45 (A)

400 – 800 = 400 (A) 1,400 – 1,680 = 280 (A) 99 – 99 = NIL 5 – 5 = NIL 36 – 36 = NIL

800 – 1,712 = 912 (A) 1,680 – 3,710 = 2,030 (A) 99 – 250 = 151 (A) 5 – 6 = 1 (A) 36 – 80 = 44 (A)

-------------------------------------------------------------------------------------------------------------------------------------------Question66: POV Ltd uses a standard costing system to control and report upon the production of its single product. An abstract from the original standard cost card of the product is as follows:

For period 3: 2500 units were budgeted to be produced and sold but the actual production and sales were 2850 units. The following information was also available: (i) At the commencement of Period 3 the normal material became unobtainable and it was necessary to use an alternative. Unfortunately, 0.5 kg per unit extra was required and it was thought that the materials would be more difficult to work with.The price of the alternative was expected to be ` 16.50 per kg. In the event, actual usage was 12450 kg at � 18 per kg.

(ii) Weather conditions unexpectedly improved for the period with the result that a � 0.50 per hour bad weather bonus, which had been allowedfor in the original standard, did not have to be paid.Because of the difficulties expected with the alternative material, management agreed to pay the workers � 8per

hour for period 3 only. During the period 18,800 hours were paid for. After using conventional variances for some time, POV Ltd is contemplating extending its system to include planning and operational variances. Required: (a) To prepare a statement reconciling budgeted contribution for the period with actual contribution, using conventional material and labour variances; (b) To prepare a similar reconciliation statement using planning and operational variances;

Solution: Data for Resource Variances Original Standard Material

Qty.

Material (kg) 2,850 × 4 = 11,400 Labour (hrs.) 6 × 2,850 = 17,100

Revised Standard

Rate

Qty. Rate (�) (�) 20 2,28,000 12,825 (2,850×4.5) 16.5 2,11,612.50 7 1,19,700 17,100 6.5 1,11,150

3,47,700

Actual Qty.

12,450 18,800

Rate

18 8

(�`) 2,24,100 1,50,400

3,22,762.5

3,74,500

(a) Statement of Reconciliation (Planning and Operating Variances) Amount (�)

Budgeted Contribution Sales Variances Cost Volume Variance

PArticulars

1:- MAteiral Cost Variance 2:- Material Price Variacne 3:- Material Usage variance 4:- Labour Cost varaince 5:- Labour Rate variance 6:- Labour Efficiency Variances Total Variances

(2,500 × 78) Sales Margin Price Sales Margin volume (2,500 – 2,850) × 78 Total Planning Variance (b) Total Operating Variance (b) Actual Contribution (2,850 × 200 – 3,74,500)

1,95,000  — 27,300 (F) 24,937.5 (F) 51,737.5 (A) 1,95,500

 ) Statement of Variances (b  Traditional Variances Planning Variacnes( Operating (original –Actrual original standard – variances(Revised Standard) Revised standards) stand- Actual) 2,28,000-2,24,100 =3900(F) 2,28,0002,11,612.52,11,612.5=16,387.5(F) 2.24,100=12,487.5(A) (20 -18) X 12,450 = (20-16.5) X 12,825 = (16.5 – 18) X 12,450 = 24,900(F) 44,887.5(F) 18,675(A) (11,400 – 12450) X 20 = (11,400 – 12,825) X 20 (12,825-12,450) X 16.5= 21,000(A) = 28,500(A) 6,187.5(F) 1,19,700 – 1,19,7001,11,150 – 1,50,400 = 1,50,400=30,700(A) 1,11,150=8,550(F) 39,250(A) (7 – 8) X 18,800 = 18,800(A) (7 – 6.5) X (6.5-8) X 18,800=28,200(A) 17,100=8,550(F) (17,100-18,800) X7 = (17,100 – 17,100) X 7 (17,100-18,800) X 11,900(A) = Nil 6.5=11,050(A) 29,800(A)

49,875(F)

51,737.5(A)

--------------------------------------------------------------------------------------------------------------------------------------Question 68: (Growth, price-recovery, and productivity components) Oceano T-shirt company sells a variety of T-shirts. Oceano presents the following data for its first two years of operations, 2003 and 2004. for simplicity, assume that all purchasing and selling costs are included in the average cost per Tshirt and that each customer buys one T-shirt. 2003 2004 Number of T-shirts purchased 20,000 30,000 Number of T-shirts lost 400 300 Number of T-shirts sold 19,600 29,700 Average selling price �15 � 14 Average cost per T-shirt � 10 � 9 Administrative capacity in terms of number of customers that can be served 40,000 36,000 Administrative costs �80,000 � 68,400 Administrative cost per customer �

�

Administrative costs depend on the number of customers that Oceano has created capacity to support, not the actual number of customers served. Required: Calculate the growth price-recovery, and productivity components of changes in operating income between 2003 and 2004.

Solution: Balance Score Card Last Year Profit (2003)

Growth

Price

Productivity

Current Year Profit

Revenue      → 2,94,000 Less: Cost Material      → 2,00,000 Others      → 80,000 Profit      → 14,000

A. 1,51,500 (F)

C. 29,700 (A)

 —

4,15,800

B. 1,03,060.4 (A)

D. 30,000 (F) E. 11,600 (F) 11,900 (F)

F. 3,061 (F)

2,70,000 68,400 77,400

48,440 (F)

3,061 (F)

A. Revenue effect of Growth = (B.Q. – A.Q.) × B.S.P. = (19,600 – 29,700) × 15 = 1,51,500 F.

B. Cost Effect of Growth = (B.Q. – A.Q.) × B.V.C. = (19,600 – 29,700) × 10.204 = 1,03,060.4 A

C. Revenue effect of price = (B.S.P. – A.S.P.) × A.Q. = (15 – 14) × 29,700 = 29,700 A.

D. Cost effect of price M.P.V. = (S.R. – A.R.) × A.Q. = (10 – 9) × 30,000 = 30,000 F

E. Cost effect of Price (Fixed) = fixed overhead expense variance = Budget – Actual = 80,000 – 68,400 = 11,600 F.

F. Productivity (Material Usage Variance) = (30,306.20 – 30,000) × 10 = 3062 F.

Working Notes: 1. Data for Resource Variance

Material

Qty.

Budget Rate

20,000

10

(�)

Qty.

Standard Rate

2,00,000 30,306.12

10

(�)

3,03,061

Qty.

Actual Rate

30,000

9

(�)

2,70,000

--------------------------------------------------------------------------------------------------------------------------------------Question 71: Following a strategy of product differentiation, Westwood Corporation makes a highend kitchen range hood, KE8. Westwood’s data for 2005 and 2006 follow: 2005 2006

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Units of KE8 produced and sold 40,000 42,000 Selling price � 100 � 110 Direct materials (square feet) 120,000 123,000 Direct material cost per square foot � 10 � 11 Manufacturing capacity for KE8 50,000 units 50,000 units Conversion costs � 1,000,000 � 1,100,000 Conversion cost per unit of capacity (Row 6 ÷ Row 5) � 20 � 22 Selling and customer-service capacity Selling and customer-service costs 30 customer 29 customer Cost per customer of selling and customer-service capacity (Row 9 � 720,000 � 725,000 ÷ Row 8) �

�

Westwood produced no defective units and reduced direct material usage per unit of KE8 in 2006. Conversion costs in each year are tied to manufacturing capacity. Selling and customer-service costs are related to the number of customers that the selling and service functions are designed to support. Westwood has 23 customers (wholesalers) in 2005 and 25 customers in 2006.

Required: Describe briefly the elements you would include in Westwood’s balanced scorecard. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2005 to 2006. Suppose during 2006, the market size for high-end kitchen range hoods grew 3% in terms of number of units and all increases in market share (that is, increases in the number of units sold greater than 3%) are due to Westwood’s product- differentiation strategy. Calculate how much of the change in operating income from 2005 to 2006 is due to the industry-  market-size factor, cost leadership, and product differentiation. How successful has Westwood been in implementing its strategy? Explain.

Solution: 1. The balanced scorecard should describe Westwood’s product-differentiation strategy. Elements that should be included in its balanced scorecard are: Financial perspective:  Increase in operating income from higher margins on KE8 and from growth Customer perspective:  Market share in the high-end market and customer satisfaction Internal business process perspective:  Manufacturing quality, order-delivery time, on-time delivery, and new product features added, development time for new products and improvements in manufacturing processes Learning-and-growth perspective:  Percentage of employees trained in process and quality management and employee satisfaction ratings.

2. Operating income for each year is: 2005

2006

Revenues (` 100 per unit × 40,000 units; � 110 per unit × 42,000 units)

� 4,000,000

� 4,620,000

1,200,000

1,353,000

1,000,000

1,100,000

720,000

725,000

2,920,000

3,178,000

Costs Direct material costs (� 10 per sq. ft. × 120,000 sq. ft.; � 11 per sq. ft. × 123,000 sq. ft.) Conversion costs (� 20 per unit × 50,000 units; � 22 per unit × 50,000 units) Selling and customer-service costs (� 24,000 per customer × 30 customers; � 25,000 per customer × 29 customers) Total costs Operating income

� 1,080,000

Change in operating income

�1,442,000

�362 000 F

Growth Component of Operating Income Change Revenue effect of growth =Actual units of output – Actual units of output sold in 2005 × Selling price in 2005 = (42,000 units − 40,000 units) × ` 100 per unit = ` 200,000 (F) Cost effect of growth for variable costs = Units of input required to produce 2006 output in 2005  – Actual units of input used to produce 2005 output × Input price in 2005 Cost effect of growth for direct materials =(120.000 Sq.Ft X 42,000 units – 120,000Sq.Ft = `60,000 U 40,000 units = (126,000 sq. ft. − 120,000 sq. ft.) × � 10 per sq. ft. = � 60,000 U Cost effect of growth for fixed costs produce 2006

= Actual units of capacity in 2005 because adequate capacity exists to

output in 2005 – Actual units of capacity in 2005 × Price per capacity in 2005 Cost effects of growth for fixed costs are: Conversion costs: (50,000 units − 50,000 units) × � 20 per unit = � 0 Selling and customer-service costs: (30 customers − 30 customers) × � 24,000 per customer = � 0 In summary, the net increase in operating income attributable to growth equals: Revenue effect of growth Cost effect of growth Direct material costs Conversion costs Selling and customer-service costs

� 60,000

(A) 0 0

Change in operating income due to growth

� 200,000

(F) 60,000 (A)

� 140,000

Price-Recovery Component of Operating-Income Change Revenue effect of = Selling price − Selling price price recovery in 2006 in 2005

×

Actual units of output

= (� 110 per unit − � 100 per unit) × 42,000 units = � 420,000 (F) Cost effect of = Input − Input × Units of input price recovery price price required to produce

(F)

for variable costs

in 2006

in 2005

2006 output in 2005

Direct material costs: ( �11 per sq. ft. − � 10 per sq. ft.) × 126,000 sq. ft. = � 126,000 (A) Cost effect of = Price per − Price per × Actual units of capacity in price recovery unit of unit of 2005, because adequate capacity for fixed costs capacity capacity exists to produce 2006 output in 2005 Cost effects of price recovery for fixed costs are: Conversion costs: (� 22 per unit − 20 per unit) × 50,000 units = �100,000 (A) Selling and cust.-service costs: (� 25,000 per cust. − � 24,000 per cust.) × 30 customers = � 30,000 (A)

In summary, the net increase in operating income attributable to price recovery equals: Revenue effect of price recovery Cost effect of price recovery

� 420.000(F)

Direct material costs Conversion costs Selling and customer-service costs

�126,000(A)

100,000(A) 30,000(A)

Change in operating income due to price recovery

256.000(A) �164,000(F)

Productivity Component of Operating-Income Change Cost effect of productivity for variable costs

=

Actual units of – Units of input × input used to produce required to produce 2006 output 2006 output in 2005

Cost effect of productivity for direct materials Cost effect of productivity for fixed costs

=

(123,000 sq. ft. − 126,000 sq. ft.) × � 11 per sq. ft. = � 33,000 (F)

=

Actual units of capacity in 2006

–

Actual units of capacity in × 2005, because adequate capacity exists to produce 2006 output in 2005

Cost effects of productivity for fixed costs are: Conversion costs: (50,000 units − 50,000 units) × � 20 per unit = � 0 Selling and customer-service costs: (29 customers − 30 customers) × � 25,000/customer = � 25,000 (F) In summary, the net increase in operating income attributable to productivity equals: Cost effect of productivity: ` 33,000 (F) Direct material costs 0 Conversion costs 25,000 (F) Selling and customer-service costs Change in operating income due to productivity � 58,000 (F)

A summary of the change in operating income between 2005 and 2006 follows:

Income Statement Amounts in 2005

(1)

Revenue Costs Operating income

� 4,000,000

2,920,000 � 1,080,000

Revenue Revenue Cost Effect of and and Cost Productivity Cost Component Effects of Effects Price-Recovery in 2006 of Growth Component Component in 2006 in 2006 (2)

(3)

� 200,000

(F) �420,000 (F) 60,000 (A) 256,000 (A) � 140,000 (F) � 164,000 (F)

(4)

(5) = (1) + (2) + (3) + (4)

 — � 58,000 (F) � 58,000

Income Statement Amounts in 2006

(F)

� 

4,620,000 3,178,000 �  1,442,000

362 000 F Chan e in o eratin income �

3. Effect of the industry-market-size factor on operating income Of the increase in sales from 40,000 to 42,000 units, 3%, or 1,200 units (0.03 × 40,000), is due to growth in market size,and 800 units (2,000 − 1,200) are due to an increase in market share. The change in Westwood’s operating income from the industry-market-size factor rather than specific strategic actions is:

$140.000(column 2 of preceding table) X

1,200 units � 84,000(F) 2,000 units

The analysis of operating income indicates that a significant amount of the increase in operating income resulted from Westwood’s successful implementation of its product-differentiation strategy. The company was able to continue to charge a premium price for KE8 while increasing market share. Westwood was also able to earn additional operating income from improving its productivity.

--------------------------------------------------------------------------------------------------------------------------------------Question 73: The CEO of your company has been given the following statement showing the results for a recent month: Particulars Master Budget Actual Units produced & sold 10,000 9,000 �

Sales Direct material Direct Wages Variable overhead Fixed overhead Total cost Net Surplus

�

8,00,000 2,00,000 3,00,000 1,00,000 1,00,000 7,00,000 1,00,000

7,00,000 1,84,000 2,62,000 94,000 98,000 6,38,000 62,000

The standard cost of the product is as follows: Direct material (1 kg. @ � 20/kg) Direct Wages (1 hour @ � 30/hour) Variable overhead (1 hour @ � 10/hour) Actual results for the month revealed that 9,800 kg. of material was used and 8,800 labour hours were recorded. (i) Prepare a flexible budget for the month and compare with the actual results. (ii) Calculate material volume and variable overhead efficiency variances.

Solution: Particular Units Sales

Master Budget

Budget

Flexible

10,000

9,000

9,000

Total (�)

Per Unit (�)

Total (�)

Actual (�)

Variance

20,000 (A)

8,00,000

80

7,20,000

7,00,000

Direct Material Direct Wages Variable Overhead

3,00,000 1,00,000

30 10

2,70,000 90,000

2,62,000 94,000

Total Variable Cost

6,00,000

60

5,40,000

5,40,000

Contribution Fixed Overhead

2,00,000 1,00,000

20 10

1,80,000 1,00,000

1,60,000 98,000

20,000 (A) 2,000 (F)

Net Profit

1,00,000

10

80,000

62,000

18,000 (A)

8,000 (F) 4,000 (A) —

(ii) Calculation of Variances: Material Volume Variance: SP (SQ – AQ) = 20 (9,000 – 9,800) = 16,000 (A) Variable Overhead efficiency variance SR (SH – AR) = 10 (9,000 – 8,800) = 2,000 (F) --------------------------------------------------------------------------------------------------------------------------------------Question 80: The following information relates to a manufacturing concern: Standard Amount (�)

72,000 48,000 2,40,000 60,000 1,20,000 5,40,000 60,000 6,00,000 12,000

Material A 24,000 kgs @ � 3 per kg. Material B 12,000 kgs @ � 4 per kg Wages 60,000 hours @ � 4 per hour Variable overheads 60,000 hours @ �1 per hour Fixed overheads 60,000 hours @ � 2 per hour Total Cost Budgeted profit Budgeted sales

Actual

Amount (�) 4,57,500 62,370 44,649 1,91,250 1,20,900 45,000 47,700 900 units

Sales (9,000 units) Material A consumed 22,275 kgs. Material B consumed 10,890 kgs. Wages paid (48,000 hours) Fixed Overhead Variable overhead Labour hours worked Closing work in progress Degree of completion: Material A and B Wage and overheads

100% 50%

Required: (i) Calculate all the material and labour variances. (ii) Calculate variable overhead expenditure and e  fficiency variances, fixed overhead expenditure and volume variances and sales price and sales volume variances.

Solution: Statement of Equivalent Production in Units Particulars

Units Completed Closing W.I.P. Equivalent Units

Materials % age Units 100% 9,000 100% 900

9,900

Wages & % age 100% 50%

Units 9,000 450

9,450

Material Variances Standard quantity for actual output ** x Material A 19,800 @ 3 59,400 Material B 9,900 @ 4 39,600 29,700 99,000

Actual quantity X Actual 22,275 @ 2.8* 62,370 10,889 @ 4.1* 44,649 33,165 1,07,019

Actual Cost/Actual Quantity Standard Quantity for actual output = (std qty/budgeted prod) × actual output

--------------------------------------------------------------------------------------------------------------------------------------Question 78: X uses traditional standard costing system. The inspection and setup costs are actually � 1,760 against a budget of � 2,000. ABC system is being implemented and accordingly, the number of batches is identified as the cost driver for inspection and setup costs. The budgeted production is 10,000 units inbatches of 1,000 units, whereas actually, 8,800 units were produced in 11 batches. (i) Find the volume and total fixed overhead variance under the traditional standard costing system. (ii) Find the total fixed overhead cost variance under the ABC system.

Solution: (a) (i) Traditional Standard Costing System Budgeted Overhead Cost/unit

Fixed Overhead expenditure variance Std absorption Rate = 2000/10000 Fixed Over head volume variance

Actual 2,000/10,000 = 0.2 Variance=absorbed Budget = 0.2 X 8,800 – 1760 = 1,760 – 1,760 = 0 Budgeted Oh-Actual OH = 2,000 – 1,760 =240(F) = ` 0.2 per unit =Std absorption rate X(Budget unit s-Actual units)

1,760/8,800 = 0.2 Overhead – actual overhead